CARPE DIEM

Professor Mark J. Perry's Blog for Economics and Finance

Tuesday, June 12, 2007

Harvesting Cash: American Farmers Got $35 Billion

For decades, American taxpayers have provided tens of billions of dollars in federal farm subsidies ($35 billion between 2003-2005) to some of the largest and wealthiest farm businesses in the nation. But thousands of people who benefited from the subsidy flow were shielded from public view behind layers of partnerships, joint ventures, limited liability corporations, cooperatives, and other business structures that obscured their personal subsidy claims. Not anymore.

A new online database, developed by the Environmental Working Group (EWG) from millions of previously unpublished USDA subsidy records, provides nearly full disclosure of federal farm subsidy beneficiaries for the first time. The disclosures include individuals, sometimes numbering in the dozens, whose subsidy benefits pass through one or more plantation-scale farm businesses that produce vast quantities of subsidized cotton, rice and other crops. Many of those businesses receive millions in USDA crop subsidies each year, and according to the new USDA data, pass six-figure benefits through to many people. In many cases, these individuals have not previously had subsidy benefits attributed to them by name.

EWG finds that the top 1% of beneficiaries received 17% of the crop subsidy benefits between 2003 and 2005, and their average benefit was $377,484 per person for the 3 program years or over $125,000 apiece annually.

Read more about EWG here, and check out its updated searchable Farm Subsidy database that just became available today.

Read an AP story hereabout EWG and the new searchable farm subsidy database.

And who has harvested the most money from farm programs? Who's The King? As revealed in the new data, the current answer to that question is one Maurice Wilder, resident of Florida. Mr. Wilder received a total of $3,217,158 in farm program payments from 2003-2005. Read about The King of Farm Cash here.

Reminds of an old joke - Q: How do you starve a farmer? A: Weld his mailbox shut.

Unconscionable Movie Ticket Gouging?

I had a previous post on stamp prices and several posts on food prices here and here. When I came across this time series of movie ticket prices back to 1910, I was able to create the chart above (click to enlarge) that shows inflation-adjusted price indexes for movie tickets and gasoline over the last 50 years. As the chart shows, the real price of a movie ticket today ($6.58) is 80% higher than in 1957 when the nominal price of a movie was 50 cents, but $3.65 in today's dollars. In contrast, the average price of gasoline so far this year of $2.60 per gallon according to EIA data, is only about 15% above the real price in 1957, when gas sold for 31 cents per gallon ($2.26 in today's dollars). Bottom Line: Compared to buying a movie ticket, gasoline today is a real bargain. And yet you'll find 83,200 Google hits for the term "gasoline price gouging" and only 2 for "movie ticket gouging." And Congress has yet to introduce legislation to protect consumers from "unconscionable movie gouging," like for gas. Oh, and what about the price of popcorn once you enter the movie theater? If consumers ever needed legislation for protection against "unconscionable pricing," movie theater popcorn would be a good place to start.

Grand Rapids Marriot Drops Gender Segregation

In a previous post, I wrote about the Marriot Hotel in Grand Rapids, MI that announced recently that it intended to reserve the entire 19th floor of the hotel for women only, and charge a $25-30 nightly premium. According to this AP report, "Soon afterward, the hotel received a "tremendous response" from its customers and others, and the decision was made not to go forward with the gender-segregated floor, a Mariot spokesperson said."Probably a good idea since the Public Accommodation section of the the Civil Rights Act of 1964 says that "All persons shall be entitled to the full and equal enjoyment of the services, facilities, and privileges, advantages, and accommodations of any place of public accommodation (any inn, hotel, motel that provides lodging to transient guests), without discrimination or segregation."

Moving to India? Don't Buy a Car, Taxis Are Cheaper

According to this Economic Times of India article Want to save on expenses? Sell your car!, it costs 16.73 rupees per kilometer to operate a car in India, which works out to about 67 cents per mile (see graph above).

In contrast, it costs only 48.5 cents per mile to operate a vehicle in the U.S., according to the IRS. In a previous post, I reported that gasoline currently costs $5.16 per gallon in India, so it makes sense that driving in India is a lot more expensive than in the U.S., and also explains partly why the average person in India drives only about 6,000 miles (10,000 km) per year compared to the 12,000 mile average in the U.S. The article also claims that it would actually be slightly cheaper to use taxis (60 cents per mile) than owning and operating a car. (HT: Sanil Kori)

Google Street View or Google Spy?

Google's "Street View Van."

Google Street View of 7th Ave. and West 43 St., NYC.

From today's Slate, "Google Spy: Zooming in on neighbors, nose-pickers, and sunbathers with Google Street View,"

As Google grows older, it's becoming that kid who brings an M-80 to the neighborhood barbecue. While everyone else is goofing off with sparklers, Google blows up a trash can and freaks out the entire block.

The latest explosion is Google Street View. The free-sushi-eating Googleheads dreamed up the idea to send a camera-equipped van (see picture above) to take 360-degree shots around the streets of San Francisco, Las Vegas, New York, Denver, and Miami. Cool, right? Then the service launched last Tuesday, and Mary Kalin-Casey discovered that she could see her cat Monty in the window of her apartment. If you zoom in, you can tell that Monty is a tabby.

Monday, June 11, 2007

Ford's Volvo Enters the India Market in 2007

For the second month this year (May), Toyota outsold Ford Motor Co., which saw sales fall 6.9%, according to this report. But Ford sales worldwide might get a boost from the strong economic growth in India, and the fact that in developing markets, the premium segments of the car business grow the fastest. From the article Volvo to Hit Indian Roads by Year End, "Ford-owned premium car brand Volvo is planning to drive into India the S80 (top picture above) and the SUV XC 90 by the end of this year (bottom picture above)."MP: Maybe the booming economies of India and China will help save Ford and GM? As globalization and free markets unleash previously untapped entrepreneurship, talent and wealth in India and China, their middle and upper classes expand and prosper, and they enter the global marketplace and start to buy globally, including many products from the U.S. and from U.S. MNCs like Ford.

Wal-Mart Enters India in Early 2008

NEW DELHI - "The Bharti-Wal-Mart retail partnership is looking at opening its first clutch of retail stores - around half a dozen - sometime early next year.

Bharti Enterprises group chairman and CEO Sunil Mittal today said: “We will start rolling out stores from next year and may put up several hundred stores over four to five years”. Bharti has announced that it will invest $2.5 billion in its retail venture, under which it will lead and manage the front end operations, while Wal-Mart will power the logistics and backend operations. Around $100 million has already been committed by Bharti."Read more here.Read a previous post here about Wal-Mart's impressive overseas sales growth, despite staganating sales in the U.S.

Globalization of U.S. Higher Education

Greg Mankiw has a post today "MBA vs. PhD" responding to a question about career options and earning potential with a Ph.D. in economics compared to an MBA degree.

There is a link to this report "The Market for New Ph.D. Economists in 2002," which contains the data in the chart above (click to enlarge) for the percent of foreign students in economics doctoral programs in the U.S. Isn't it interesting that 30 years ago, U.S. citizens made up 2/3 of the economics students in Ph.D. programs, and in 2000 international students made up almost 2/3 of the students!

Also interesting is the fact that the median time to get a Ph.D. in economics was 7 years in 2000, compared to 5.7 years in 1976.Here are the stats on Harvard MBAs, including median starting salaries in 2006 ($105,000).

Quote of the Day II: Economic Hypochondriacs

Early in Bush's presidency, liberal critics said: The economy is not growing. Which was true. He inherited the debris of the 1990s' irrational exuberances. A brief (8 months) and mild (the mildest since World War II) recession began in March 2001, before any of his policies were implemented. It ended in November 2001.

In 2002, when his tax cuts kicked in and the economy began 65 months -- so far -- of uninterrupted growth, critics said: But it is a "jobless recovery." When the unemployment rate steadily declined -- today it is 4.5%; time was, 6% was considered full employment -- critics said: Well, all right, the economy is growing and creating jobs and wealth, but the wealth is not being distributed in accordance with the laws of God or Nature or liberalism or something.

In the 102 quarters since Ronald Reagan's tax cuts went into effect more than 25 years ago, there have been 96 quarters of growth. Since the Bush tax cuts and the current expansion began, the economy's growth has averaged 3 percent per quarter, and more than 8 million jobs have been created. The deficit as a percentage of gross domestic product is below the post-World War II average.

Hank Leukart, a Seattle travel writer, says "I love high gas prices. In the long run, high gas prices have so many good repercussions in the form of less traffic, accidents, air pollution and a boost for renewable fuels that the temporary loss of expendable income seems worth it."

High gas prices may not only be desirable, but vital, says John Sterman, a professor at the Sloan School of Management at the Massachusetts Institute of Technology in Cambridge. A recent study he co-wrote found that sustained high gasoline prices are a critical factor in developing US markets for alternative-fuel vehicles. But prices would need to go up to and remain at European levels of $4 to $5 a gallon, he says.

Across the American landscape, a sprinkling of economists, authors, bloggers, and pundits are making the case that there's a silver lining to high gasoline prices. Instead of pain at the pump, they see payoffs: less traffic, fewer accidents, reduced air pollution, better efficiency, more reliance on renewable fuels, and less dependence on foreign oil.

Disney Goes Global: India, China, Russia, Korea, LA

Disney's traditional approach was largely to force-feed its U.S. products from its Burbank, Calif., headquarters. The company ultimately concluded the cookie-cutter approach wouldn't work, and now it is going country by country, with a particular focus on five hot markets: India, China, Russia, Latin America and South Korea. "We're building Disney from scratch," in countries such as India, said Mr. Iger, citing the company's founder and namesake: Just "as Walt did in the U.S. over 50 years ago."In India, the stakes for Disney are huge: The Indian population under 14 years old is bigger than the entire U.S. population, and household incomes are rising fast.India's multitude of languages, dialects and religions makes Disney's strategy akin to "three dimensional chess." Mr. P.S., Disney's local movie executive, says the company plans to release its first animated film in at least three languages: Hindi, Tamil and Telugu. Later on, Disney may make live-action movies specifically for the country's south, which has different tastes in movies and has emerged as an important market.MP: Critics of globalization often complain that U.S. MNCs force American culture, fashion and fast food cuisine on developing countries like India and China, but Disney's approach in India demonstrates that local customs, language and culture have to be respected. "Consumer sovereignty" is global and universal.

Sunday, June 10, 2007

Tragedy of the Commons, Bike Programs Go Flat

"Identical new bright yellow bicycles -- 52 of them -- were placed in downtown Lexington yesterday. For a fee of $10 that's good for a lifetime, a person may take one of the bikes for a spin at any time from April to October in the downtown area."

"Somewhere out there are 51 other yellow bikes, part of a three-week-old program to promote bike use downtown.

When the program was launched in May, the bikes were clustered conspicuously along busy downtown streets. But today some wonder where all the bikes have gone. There are concerns that people are taking them outside of downtown, storing them at home or stealing them.A Herald-Leader reporter and photographer drove around downtown and surrounding neighborhoods yesterday for about four hours on a hunt for Yellow Bikes.

The trip turned up 10 bikes, four of which had flat tires (see picture above) or missing seats. Most of the 10 were in residential areas north of the downtown business district, although one bike was locked to a street sign in a nearby neighborhood. One bike with no seat and a flat rear tire had been locked near the corner of N. Broadway and W. Sixth Street for two weeks, a neighbor said."

Not to be deterred by the reality of the many previous failed experiments with common property bikes in other parts of the country, the organizers in Lexington hope to have 200 bikes by the end of summer.

Quote of the Day

"A 2002 National Research Council study showed that 1,300 to 2,600 more Americans were killed on the roads in 1993, a representative year, because cars had been made lighter in pursuit of fuel economy. If a crib had resulted in even one death, the product would be banned.Ironically, the same politicians who want to raise CAFE standards to reduce gasoline consumption want to discourage price increases (the House just passed Rep. Bart Stupak’s (D-MI) price gouging act)—which would provide a bigger incentive for consumers to cut back than cumbersome CAFE regulations."~Diana Furchtgott-Roth, in "This CAFÉ is Served Without Dessert"

Graph of the Day II

Unconscionable Stamp Gouging?

The graph above (click to enlarge) shows a 50-year history of the real price of gasoline (using these EIA data) from 1957-2007 and the real price of a first-class U.S. postage stamp (using these data and the same price index from the EIA to adjust for inflation). Both prices are expressed as an index that has a value of 100 in 1957. As the graph shows, the real price of gas today is only about 20% higher than it was in 1957, even though real per-capita disposable income is about 3 times higher today. Compared to the peak in 1980-1981, real gas prices are still about 12% lower in 2007. In contrast, the real price of a first-class stamp has almost doubled in the last 50 years, and is now almost 90% higher today than in 1957, and had more than doubled in price in the mid-1970s. Granted, the real price of a stamp has remained relatively stable over the last 20 years, which is why we probably haven't heard a lot complaints about "unconscionable stamp gouging." But over the last half-century, isnt' the case for "unconscionable stamp gouging" is a lot stronger than the case for "unconscionable gas gouging?"

Saturday, June 09, 2007

Graph of the Day

According to the American Association of Water Works Association, daily indoor per capita water use in the typical single family home in the U.S. is 69.3 gallons. A breakdown of the uses, by percent of total, is shown above in the graph (click to enlarge).Via Swivel, a website that "lets you explore data and share your insights with others. Swivel has data about politics, economics, weather, sports, business and more."

All else being equal (sure, right).

Economics: Harnessing the Power of Incentives

From today's WSJ, an excellent article by University of Rochester economist Steven Landsburg (author of "Armchair Economist: Economics and Everyday Life" and "More Sex is Safer Sex: The Unconventional Wisdom of Economics," and Slate.com columnist for "Everyday Economics"), here are some excerpts:Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture -- but none of that stuff had much effect on the quality of people's lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level. (See graph above, click to enlarge.)

Then -- just a couple of hundred years ago, maybe 10 generations -- people started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year. A couple of decades later, the same thing was happening around the world. (See graph above.)

Then it got even better. By the 20th century, per capita real incomes, that is, incomes adjusted for inflation, were growing at 1.5% per year, on average, and for the past half century they've been growing at about 2.3%. If you're earning a modest middle-class income of $50,000 a year, and if you expect your children, 25 years from now, to occupy that same modest rung on the economic ladder, then with a 2.3% growth rate, they'll be earning the inflation-adjusted equivalent of $89,000 a year. Their children, another 25 years down the line, will earn $158,000 a year.

The underlying expectation -- that the present is supposed to be better than the past -- is a new phenomenon in history. No 18th-century politician would have asked "Are you better off than you were four years ago?" because it never would have occurred to anyone that they ought to be better off than they were four years ago.

Rising income is only part of the story. One hundred years ago the average American workweek was over 60 hours; today it's under 35. One hundred years ago 6% of manufacturing workers took vacations; today it's over 90%. One hundred years ago the average housekeeper spent 12 hours a day on laundry, cooking, cleaning and sewing; today it's about three hours.

As far as the quality of the goods we buy, try picking up an electronics catalogue from, oh, say, 2001 and ask yourself whether there's anything there you'd want to buy. That was the year my friend Ben spent $600 for a 1.3-megapixel digital camera that weighed a pound and a half. What about services, such as health care? Would you rather purchase today's health care at today's prices or the health care of, say, 1970 at 1970 prices? I don't know any informed person who would choose 1970, which means that despite all the hype about costs, health care now is a better bargain than it's ever been before.

The moral is that increases in measured income -- even the phenomenal increases of the past two centuries -- grossly understate the real improvements in our economic condition.

The source of this wealth -- the engine of prosperity -- is technological progress. And the engine of technological progress is ideas -- not just the ideas from engineering laboratories, but also ideas like new methods of crop rotation, or just-in-time inventory management.

Some good ideas even come from economists. Julian Simon came up with the idea of bribing airline passengers to give up their seats on overbooked flights -- and gone were the days when you relied on the luck of the draw to make it to your daughter's wedding. Economists first suggested creating property rights in African elephants, a policy that has given villagers an incentive to harvest at a sustainable rate and drive the poachers away. The result? Villagers have prospered and the elephant population has soared.

Engineers figure out how to harness the power of technology; economists figure out how to harness the power of incentives. Our prosperity relies on both.

See some previous CD posts on economic growth over time here, and here, and here.

About the importance of incentives, Landsburg wrote "Most of economics can be summarized in four words: "People respond to incentives." The rest is commentary."

Friday, June 08, 2007

Welcome UM-F BUSINESS ECONOMICS STUDENTS!

A new term starts today (Sat) for UM-Flint's NetPlus! MBA innovative mixed-mode (part online, part classroom) graduate business program, and I'll be teaching the MGT 551 Business Economics class for the next 12 weeks. Many of the blog postings over the summer will be directly related to the topics covered in our class, so "read Carpe Diem early and read it often"! Carpe Diem 551 Students, Welcome to the Blog!

NY Times Business Articles

Recommended recent articles from the NY Times Business Section:1. Chinese Auto Parts Enter the Global Market: "China’s auto parts exports have increased more than sixfold in the last five years, nearly topping $1 billion in April and emerging as one of the fastest-growing categories of Chinese industrial products sold overseas. More than half of these auto parts go to the United States; most of the rest to Europe and Japan.

The rise of Chinese auto parts exports is part of a much broader shift. China is moving up from basic goods like textiles, toys and shoes and toward higher-value industrial goods that pay better wages — but also compete more directly with products from countries like Mexico and even from advanced industrialized countries like the United States.The combined wages of 20 workers here come to only $40,000 a year at the current exchange rate of 7.65 yuan to the dollar. That is in the range of annual base pay for one unionized auto parts worker in the United States and comparable to two nonunion American auto parts workers." 2. One City’s Home Sellers Do Better on Their Own, "The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially."3. Rise in China’s Pork Prices Signals End to Cheap Output: "From pork spare ribs and mu shu pork to char siu bao — barbecued pork buns — pork is a staple of the Chinese diet. So in this Year of the Pig, an acute shortage of pork has been national news, as butchers raise prices almost daily and politicians scramble to respond.

Steep increases for pork loins and bacon are the most tangible sign that after a decade in which prices have fluctuated but not moved significantly upward, inflation is creeping back into China. In response to this pressure at home, Chinese companies are starting to raise prices for exports, removing what has been a brake on inflation in the West."

Record Household Net Worth Exceeds $56 Trillion

Associated Press:U.S. households' total net worth continued to climb in the first quarter of 2007, advancing 1.1 percent to a record $56.18 trillion, the Federal Reserve said Thursday (see graph above).

In the January-March period household net worth grew for the 18th consecutive quarter. The record $56.18 trillion posted in the most recent quarter was up from the fourth quarter's $55.59 trillion, the previous record high.

Note: This was an increase of $590 billion in net worth since the previous quarter, which is about $2000 per person, or $8000 per household of four. The average person uses about 40 gallons of gas per month, or 120 gallons in a quarter. Even in a quarter when gas prices rise by $1 per gallon (which would be unusally high), it would only adversely affect the spending of the average household of two drivers by $240, which seems kind of insignificant in comparison to the increase in the average household net worth.

Why Have 2,000+ MDs Applied to Move to Texas?

More than 2,000 MD license applications await processing at the Texas Medical Board in Austin, including 350 Tennessee doctors who have applied to move their practices to Texas. Why are thousands of physicians trying to relocate to Texas? Find out why here, but you can probably guess that it has something to do with tort reform.

Cartoon of the Day: 1 Foot on Brakes, 1 on the Gas

Isn't a lot of what Congress does like driving a car with one foot on the gas and one foot on the brakes? Exhibit A: Congress drives up gasoline prices with ethanol fuel mandates, seasonal formulation mandates, and by restricting refinery expansion and oil exploriation in the U.S., and then passes the "Federal Price Gouging Prevention Act" to protect consumers against high gasoline prices?

Result of War on Drugs: Everyday Low Drug Prices

In the July/August issue of The Atlantic (subscription required), there is another excellent article "Snow Fall: Attacking cocaine at its source was meant to drive up prices, yet U.S. street dealers are selling it for less than ever." It opens like this:"If the four-year slog in Iraq seems endless, consider this: The “War on Drugs,” begun by Richard Nixon, escalated under Ronald Reagan, and continued by every president since , is now in its 37th year." Here are some facts about the War on Drugs:Number of U.S. presidents presiding over the War on Drugs: 7 (Nixon, Ford, Carter, Reagan, Bush, Clinton, Bush)Largest Recent Drug Busts: 20 tons of cocaine in March near Panama, followed shortly by a 15 ton seizure in April in Colombia. That's 70,000 pounds of pure cocaine, or 32 million grams, just about enough for 1 gram of pure cocaine for every resident of California, or the country of Canada. When cut to typical street level quality, it might end up eventually as 100 million grams, enough for one gram for every resident of CA, TX, NY, and FL. Amount spent on the War on Drugs since 1981: $600-800 billion, about the same amount spent on the Vietnam War, another failed effort. Number 2 destination for cocaine: Brazil (U.S. is #1)Price of a gram of pure cocaine in Bogota: $2Cost of "Plan Colombia" since 2000 for aerial coca eradication in an area of Colombia equal to Delaware and Rhode Island: Almost $5 billion, about the same as Ireland has spent on its entire military budget during that periodLowest price of a gram of cocaine in various U.S. cities in 2005 (see graph above, click to enlarge): $20 in NY and Miami, $30 in L.A. and Seattle, $50 in Detroit and Dallas, $75 in Chicago, $80 in Atlanta. Average price of a gram of cocaine in the U.S. (nine cities in graph) in 1999: $70Average price of a gram of cocaine in U.S. in 2005: $50

Reasons for the significant decline in the price of cocaine (30%) between 1999 and 2005: 1) more efficient distribution networks and supply chain management, just like Wal-Mart, to achieve "everyday low cocaine prices," 2) increased trade between U.S. and Mexico that allows more cocaine to penetrate a porous border, 3) a recent reduction in drug enforcement and arrests as resources have been shifted to fighting terrorism, and 4) when drug offenders get out of prison, stigmatized by felony convictions and possessing no licit skills, they are sometimes willing to sell dope for less than they were earning before they went in.

Thursday, June 07, 2007

America Should Welcome China's Rise

From the current July/August issue of The Atlantic, an excellent article "China Makes, The World Takes: A Look Inside the World's Manufacturing Center Shows that America Should Welcome China's Rise" (subscription required for the article, the slide show here should be available free), here are some excerpts:"Most of what has been good about China over the past generation has come directly or indirectly from its factories. The country has public money with which to build roads, houses, and schools—especially roads. The vast population in the countryside has what their forebears acutely lacked, and peasants elsewhere today still do: a chance at paying jobs, which means a chance to escape rural poverty. Americans complain about cheap junk pouring out of Chinese mills, but they rely on China for a lot that is not junk, and whose cheap price is important to American industrial and domestic life. Modern consumer culture rests on the assumption that the nicest, most advanced goods—computers, audio systems, wall-sized TVs—will get cheaper year by year. Moore’s Law, which in one version says that the price of computing power will be cut in half every 18 months or so, is part of the reason, but China’s factories are a big part too. At the electronics and household-goods factories, the pay is between 900 and 1,200 RMB per month, or about $115 to $155. In the villages the workers left, a farm family’s cash earnings might be a few thousand RMB per year.A factory work shift is typically 12 hours, usually with two breaks for meals (subsidized or free), six or seven days per week. Chinese law says that the standard workweek is 40 hours, so this means a lot of overtime, which is included in the pay rates above. Since their home village may be several days’ travel by train and bus, workers from the hinterland usually go back only once a year. They all go at the same time—during the “Spring Festival,” or Chinese New Year, when ports and factories effectively close for a week or so and the nation’s transport system is choked. “The people here work hard,” an American manager in a U.S.-owned plant told me. “They’re young. They’re quick. There’s none of this ‘I have to go pick up the kids’ nonsense you get in the States.”

In case the point isn’t clear: Chinese workers making $1,000 a year have been helping American designers, marketers, engineers, and retailers making $1,000 a week (and up) earn even more. Plus, they have helped shareholders of U.S.-based companies."

Global Sales Increases for Wal-Mart Help the U.S.

From today's WSJ, "Retailers reported modest sales increases for May, rebounding from a dismal April but confirming a broad consumer slowdown that's now stoking worries about the crucial fall and holiday seasons.

Wal-Mart reported a 1.1% same-store sales gain, at the lower end of its 1% to 2% forecast (see chart above). While results were better than expected at the company's Sam's Clubs, same-store sales at its namesake chain rose just 0.3% amid persistent weakness in apparel and home-related items."

"Wal-Mart supports its international operations at its headquarters in Bentonville, Arkansas, where it employs over 15,000 people. Roughly 1,500 associates in its information systems division are responsible for coordinating the worldwide distribution systems that move Wal-Mart’s products to ten countries around the globe. Before Wal-Mart began to expand overseas in the mid-1990s, most of these 1,500 jobs did not exist."

Bottom Line: Despite somewhat weak same-store sales for Wal-Mart, notice that Net Sales for all Wal-Mart Stores increased by 5.5% in May (see chart above), and note also that international sales for Wal-Mart increased 14.2% in May and 16.4% over the last 17 weeks. This points another way that globalization helps the American economy - even if U.S. sales are slow, companies like Wal-Mart might be experiencing strong sales overseas, which helps support and expand the 15000 Wal-Mart jobs in Arkansas coordinating an expanding worldwide distribution system to support double-digit sales increases OUTSIDE the U.S.

Globalization Lifts 300m Indians Out of Poverty

From The Economist magazine's article "Luxury goods in India: Maharajahs in the shopping mall:"

"India has fewer than 100,000 millionaires (measured in USD) among its one billion-plus population, according to American Express, a financial-services firm. It predicts that this number will grow by 12.8% a year for the next three years. The longer-term ascendance of India's middle class, meanwhile, has been charted by the McKinsey Global Institute, which predicts that average incomes will have tripled by 2025, lifting nearly 300m Indians out of poverty and causing the middle class to grow more than tenfold, to 583m."MP: When free markets, international trade and globalization lift hundreds of millions of people out of poverty, do we really need the World Bank and IMF?

"If India continues on its current high growth path, incomes will almost triple over the next two decades, and the country will climb from its position as the twelfth-largest consumer market today to become the world's fifth-largest consumer market by 2025 (equal to Germany)."

Wednesday, June 06, 2007

Fair Pay Act of 2007: "Unconscionably Ridiculous"

Greg Mankiw discusses "A Comeback for Comparable Worth" on his blogs and cites this Fortune Magazine article "Obama flunks Econ 101: As co-sponsor of a bill that would bureaucratize most of the labor market, the presidential hopeful is flirting with a very bad idea." The issue here is the Fair Pay Act of 2007, introduced by Tom Harkin (D-Iowa) in April (Illinois Sen BarackObama is one of 15 co-sponsors), and which intends to correct the wage differentials between men and women. From the Fortune article:"To the Fair Pay Act's backers, the simple fact that women make 81% of men's full-time earnings is in and of itself proof of discrimination, past and present. Only a pig-headed sexist would argue otherwise."Well, of course it's not that simple. Fortune cites this BLS report from September 2006, which does show on Table 1 that for the general population, and unadjusted for any important variables that contribute to differences in earnings, women's median weekly earnings ($585) are 81% of men's earnings ($722). But here are a few interesting details from the BLS report:1. Controlling for just marital status, and looking only at those workers who have "never married," women earn 96.7% of what men earn. Not much of a pay gap there. 2. Controlling for age, and looking at the age group 25-34, women earn 89.1% of what men earn. For older age groups, the pay gap widens. For example, women in the 35-44 age group make only 75.6% of men, as might be expected due to motherhood and child raising. 3. Looking at "median hourly earnings" on Table 9, female workers with a bachelor's degree or higher make 99.6% of what men earn with the same education. No pay gap there. 4. Looking at union workers in Table 9, female union members make only 78% of male workers, compared to female workers not represented by a union, who make 88.2% of male wages! What about "workers' rights" for union women? Help us out Walt G!The Fortune article concludes: "The Fair Pay Act is, in short, madness. And it is troubling that Obama has associated himself with this kind of legislation - a position that has the feel of a pander to the feminist left. It is certainly not sound economics."

Quote of the Day: Walter Williams on "Rights"

"We hear a lot of talk about this or that human right, such as a right to health care, food or housing. That's a perverse usage of the term "right." A right, such as a right to free speech, imposes no obligation on another, except that of non-interference. The so-called right to health care, food or housing, whether a person can afford it or not, is something entirely different; it does impose an obligation on another. If one person has a right to something he didn't produce, simultaneously and of necessity it means that some other person does not have the right to something he did produce. That's because, since there's no Santa Claus or Tooth Fairy, in order for government to give one American a dollar, it must, through intimidation, threats and coercion, confiscate that dollar from some other American. I'd like to hear the moral argument for taking what belongs to one person to give to another person. There are people in need of help. Charity is one of the nobler human motivations. The act of reaching into one's own pockets to help a fellow man in need is praiseworthy and laudable. Reaching into someone else's pocket is despicable and worthy of condemnation." ~George Mason economist Walter Williams, in his column "Compassion Versus Reality"

Tuesday, June 05, 2007

What the World Eats, Pretty Cool

What's on family dinner tables in fifteen different homes around the globe? Photographs by Peter Menzel from the book "Hungry Planet," see the slide show here. I think I'll skip the pig's knuckles though, with the Sobczynscy family in Poland, I'd rather hang with the Ayme's (pictured above) in Peru and have potato soup.

Quote of the Day: An MD Who Understands Econ

Those who control public policy treat pricing as something trivial -- the concern of bourgeois shop keepers peddling trinkets. Yet the dilemma of administrative pricing causes problems for the allocation of resources today that would only be amplified if the U.S. moves toward even more government intervention in health care than already exists.Where do prices come from, how do we know when they are right? If the prices set are mistaken -- result in a mismatch of supply and demand -- how are they to be corrected if pricing decisions are made in a political (bureaucratic) arena, and by the market (supply and demand)? These questions cannot be wished away.

One important lesson of the 20th century is that, while markets are far from perfect, more choices are available when people are able to use free markets to interact with each other. Markets may not get the prices exactly correct all the time, but they are capable of self-correction, a capacity that has yet to be demonstrated by administrative pricing.

It tells you something when the supply of and demand for specialist veterinary care is so easily matched when the prices of these services are established on the market -- while shortages and oversupplies are common for human medical care when the prices of these services are set by administrators in the public sector. Will health-care reformers -- and American citizens -- get the message?

Graphs of the Day

Source: Postsecondary Education Opportunity.

It's interesting that from the 1940s through the early 1950s there was less than a 5% gap between white and black college graduates, before the Civil Rights Act and before affirmative action programs, compared to a gap of more than 15% over the last ten years.

Merit-Based Natural Diversity vs. Social Engineering

In response to Columbia President Lee Bolinger's (formerly president of the University of Michigan) article in the Chronicle for Higher Education (subscription required) "Why Diversity Matters," Dinesh D'Souza writes "Why Diversity Doesn't Matter:"Consider two scenarios for UC-Berkeley or UCLA. In the first, the campus is 45% Asian, 48% white, 4% Hispanic and 3% black. In the second, the campus is 30% Asian, 55% white, 7% hispanic, and 8% black. Does the second scenario strike you as markedly more diverse than the first?

Actually it isn't. The fraction of minorities is roughly the same. The difference is that the first scenario is produced by merit. It represents merit-based diversity. It is a pretty good picture of what Berkeley and UCLA look like now. The second scenario is produced by racial preferences. It represents socially-engineered diversity. It is how Berkeley and UCLA used to look in the era of racial preferences.

The advantage of natural diversity is that it achieves its goal without sacrificing merit. The disadvantage of socially-engineered diversity is twofold: First, it is unfair to qualified students who are denied admission. If you want to raise the proportion of under-represented groups, you have to lower the proportion of over-represented groups. But who are these over-represented groups? Basically they are Jews and Asian Americans. And they are over-represented not because they are discriminating against anybody but because they are out-performing everybody. So why should they suffer?

The second disadvantage of ethnic and racial preferences is that they often hurt the students they seek to help. How? By putting them into competition with students against whom they are mismatched. A Hispanic student who can do the work and compete effectively at San Francisco State University is admitted to Berkeley, where he is completely overwhelmed by the work and ends up at the bottom of the class, or worse, dropping out. California’s public universities had scandalous black and Hispanic dropout rates in the era of affirmative action. The bottom line is that Bollinger is wrong. Yes, diversity is good for higher education, but the issue raised by affirmative action is not one of "diversity" versus "no diversity." It is a matter of the natural diversity produced by talent and hard work, versus Bollinger's type of socially engineered diversity. The National Football League doesn't look like America, the U.S. Congress doesn't look like America, Hollywood doesn't look like America, so why is it so important that UCLA or Columbia look like America? In this country what matters is not how you look but what you can do.

Food Price Inflation = Gasoline Price Inflation

From the 25 year period from 1982 through January of 2007, the CPI for food increased at an annual rate of 2.89%, and the CPI for unleaded gasoline increased at almost exactly the same rate of 2.88% (see graph above, click to enlarge). However, the variability of gas prices over this period was almost 13 times higher than food prices, measured by the standard deviations of gasoline inflation and food inflation, 51% vs. 4% respectively. (And to be fair, if you add in the last several months of gasoline price increases, the 25-year average inflation rate for gas is slightly higher than for food.)

This difference in inflation varability probably explains why you'll find twice as many Google search hits for the term "rising gas prices" comared to "rising food prices." Even though food prices rise historically at almost the exact same rate as gasoline prices, it's the variability of gasoline prices that makes the average person unsettled and upset about gasoline prices and relatively unconcerned about rising food prices. Bottom Line: Even though gas and oil prices are volatile and change daily, that's not a sign of any market failure, it's actually the opposite: daily proof that the magic of the market is working perfectly and efficiently to continually "clear the market" and prevent shortages and surpluses.And it's the variability of gas prices that probably explains why there is legislation for "price gouging," "unconscionably excessive prices," and "winfall profits" for gasoline and oil, but NOT for food.

Monday, June 04, 2007

Mutually Inconsistent Answers

Think about how a majority of the general public would answers these 9 questions, let me predict their answers as follows:Group A:1. Is global warming a problem and do automoblies contribute significantly to it? YES2. Is increased energy efficiency desirable? YES3. Are alternative fuels like wind and solar desirable? YES4. Should we encourage hybrid cars? YES5. Should we try to reduce energy consumption as much as possible? YES6. Should we try to promote increased energy conservation? YESGroup B:

7. Are higher gas prices, like $5 per gallon, a good thing? NO8. Would you like to see lower gas prices this year, like $2 per gallon? YES9. Should we legislate against "price gouging" by oil companies? YESBottom Line: The general public's predicted answers to Questions 7 - 9 are in direct opposition to their answers to Questions 1 - 6. That is, based on the predicted answers to Group A questions, people should advocate HIGHER prices for gas and NOT LOWER prices! Higher gas prices, e.g. $5 per gallon, would lead to MORE energy conservation, LESS pollution, and INCREASED use of alternative fuels, whereas lower gas prices, e.g. $2 per gallon, would lead to LESS energy conservation, MORE pollution, and a DECREASED use of alternative fuels.

Quote of the Day

"An avowed Marxist, Venezuelan President Hugo Chávez is in the process of destroying his country. Of this there is no doubt. But he is also an international menace, and a rich one at that. He has been using his oil wealth to sow revolution, à la Fidel Castro, in South and Central America. Did we mention that he's a dear friend of the Iranian government?"

Cartoon of the Day

Sunday, June 03, 2007

If You Think Gas Prices Are High, What About Food?

From John Stossell on ABC 20/20: "One reason that people are upset by gas prices is that the price is in your face every time you drive by the gas station. But it may surprise them that this year the price of lettuce, broccoli and apples increased much more than the price of gas. You probably don't know that because they don't post big signs like gas stations do."Stossell is correct, see the annual price changes (April 2006 to April 2007) in the chart above according to the BLS: lettuce increased by 13.5%, broccoli increased by 12.7% and apples increased by 15%, which are far above the 3.7% increase in unleaded gas during the same period. New food prices are not yet available from the BLS for May, but updating retail gas prices from the EIA shows that the year-to-year May 2007 increase in gas prices was about 8.0%, which is still lower than inflation for the 3 items mentioned by Stossell on 20/20. Here's a related AP article that starts out "Rising gasoline prices have been getting all the attention, but the cost of another, more-important staple is actually rising even more: food."

Interesting Facts of the Day: Largest Cities

Butler Shortage: Starting Pay $70,000

From the WSJ, an interesting article "The Butler Boom: Wealth Explosion Sparks Labor Shortage" and related Wealth Report blog posting on butlering, one of the fastest-growing occupations in the United States after more than a half-century of decline, driven by the greatest surge in American wealth in nearly a century.

"Aside from learning the traditional butler skills (ironing a pair of French cuffs in seconds flat, storing a sable coat, washing a Bentley), today’s butlers have a learn a whole series of new duties. The new rich are building mansions so big, complex and expensive that they’re more like resorts or small businesses than homes. The butler has been rebranded as the Household Manager, becoming a kind of Chief Operating Officer for MyHome Inc.

While Jeeves fetched the slippers and served tea, the household manager oversees dozens of “vendors” — from pool cleaners and arborists to the home-theater installer and the dog groomer. The household manager is part accountant, managing multimillion-dollar budgets, and part techie, keeping shopping lists on spreadsheets and networking computers for three vacation homes. The acronym CHM, for Certified Household Manager, can now be found on business cards.

The exploding population of rich people has made demand for good household managers so great that staffing agencies are now talking about a butler shortage. Pay for starting butlers has soared to around $70,000, with some of the more-experienced butlers earning more than $200,000, along with free room and board at the mansion or guest cottage."

Exxon Pays Same Taxes As 67 Million Individuals

We hear a lot about "Exxon Mobil's record profits" (108,000 hits on Google), but considerably less attention is paid to "Exxon Mobil's record taxes" (only 97 Google hits), which is approaching $30 billion per year (see chart above). That's a large number, so here are some ways to put $28 billion of taxes in perspective:1. According to the IRS, there are about 134 million individual income tax returns filed yearly, and the amount of federal income tax collected by the bottom 50% (67,000,000 taxpayers) is about $28 billion per year. Therefore, Exxon Mobil pays about the same amount in taxes as 67 million individual taxpayers!2. $30 billion is equivalent to the entire GDP of countries like Luxembourg, Guatemala and Qatar.

3. $30 billion is the amount of state tax revenues collected (income taxes, property taxes, sales taxes, excise taxes, licenses and fees, etc.) from these 12 states COMBINED: South Dakota, North Dakota, New Hampshire, Wyoming, Montana, Vermont, Alaska, Rhode Island, Delaware, Idaho, Maine, and Nebraska.4. $30 billion is enough to fund the COMBINED budgets of the Department of Agriculture ($19 billion), the FDA ($2 billion) and the EPA ($7.6 billion).